Dive Brief:

• Staff of the Hawaii Public Utilities Commission (PUC) on Thursday proposed performance-based regulations, the first step in developing a new regulatory framework that aims to lower electricity costs and better align utility business interests with the state's clean energy goals.
• Under the proposal, utility revenues would include a target level, additional revenues for meeting performance targets and an earnings sharing mechanism. The proposal seeks to create an earnings backstop to ensure the utility's financial integrity, which could allow the framework to include more utility revenues tied to performance.
• Hawaiian Electric (HECO), the state's sole investor-owned utility, was still reviewing the proposal Friday but said it appreciated staff's recognition of the need for a "financially strong utility." 

Dive Insight:

The PUC staff's proposal is just a starting point, and following reply comments the PUC will issue a Phase 1 decision to adopt or refine the document. The parties will then be able to dig into specific details: performance incentive mechanisms, appropriate metrics and target levels and the amount of financial awards and penalties.

Fundamentally, the underlying principals are similar to a decoupling mechanism, PUC attorney Matthew McDonnell told Utility Dive.

"The proposed changes would align the utilities core business interests with customer interests and the state's energy goals," McDonnell said in an email. "At the core of the proposed framework is a focus on reducing costs, in order to deliver immediate bill savings to customers."

Staff's proposal calls for "common sense changes to utility regulations" that are intended to help HECO "operate more like a business in the competitive marketplace, with performance incentives that steer the utility toward achieving the state's goals at the least cost to customer."

Hawaii is targeting 100% renewables by 2045, though it is currently reliant on imported fossil fuels and has the highest electricity prices in the nation.

Democrat Hawaii Gov. David Ige signed legislation last April directing regulators to implement performance-based regulation by 2020, to break the link between utility revenues and capital investments.

HECO spokesman Peter Rosegg in a statement said more discussions will come.

"We appreciate the staff's recognition of the importance of a financially strong utility and we're looking forward to further discussions and refinement of positions in the next phase of the proceeding," Rosegg told Utility Dive.

The proposed earnings sharing mechanism includes a "flexible collar" approach. The mechanism "would create both upside and downside sharing between utilities and ratepayers around a target earnings level," staff explained in a summary of the framework.